2014 Outlook: Prepare for a Stagnant Corn Market

Editor's note: Over the next six weeks, AgWeb will present 2014 marketing outlooks for all of the major commodity markets. Please check back each Monday for outlooks on beef, wheat, hogs, soybean, cotton and dairy.

Is there any hope for corn prices next year? Market analysts Bob Utterback and Greg Wagner offer their thoughts on five wild cards to watch.

After the historic drought of 2012 destroyed much of the U.S. corn crop, many farmers turned the calendar to 2013 with hopes for a fresh start. The results this year were mixed. Some farmers experienced nearly ideal growing conditions and reported some of their best yields ever.

Others weren’t so lucky. An extremely wet planting season prompted a late-planted crop and roughly 7.7 million prevented planting acres. Many fields that did get planted were later plagued by hot, dry conditions. Iowa, the nation’s top corn-producing state, was one of the hardest hit areas.

However, USDA still predicted a record corn crop this year at 97.4 million planted acres, causing corn prices to tumble to the $4-$5 range, and they have struggled to rally ever since.

So what should farmers expect from 2014? Bob Utterback, president of Utterback Marketing and Farm Journal economist, and Greg Wagner, president of GWX-Ag Advisors and AgWeb markets analyst, offer their thoughts on five hot topics for next year’s market.

1. Acreage

In its September World Agricultural Supply and Demand Estimates, USDA predicted that 89.1 million acres of corn would be harvested this year, down 8.3 million from its June planted acreage estimate. With corn prices struggling, will farmers stick with corn next year?

"I think on the surface, the answer is always that there will be some adjustment. The question is which direction?" Utterback says.

Current talk in the trade is that more than 4 million corn acres will be lost, but Utterback is skeptical of that number. He predicts that initially, about 3 million to 4 million acres will be lost, but those will occur in lower-production regions.

Wagner agrees.

"There’s no question that there are widespread expectations that there will be a reduction in corn acreage and an increase in soybean acreage," Wagner says, "and it is my humble opinion that the corn acreage reduction will not be nearly as dramatic as some are forecasting."

His estimate is even more conservative: He predicts a reduction of just 1 million to 1.5 million acres.

2. Weather

From an extremely wet year in 2011 to extremely dry in 2012, to a year with both conditions in 2013, farmers are getting used to crazy weather. So how will weather affect the 2014 market?

"Only God knows," Wagner says. "There’s nothing to suggest at this juncture that there is any macro-weather force (such as El Nino or La Nina) that will adversely impact the U.S. crop next year."

However, Utterback says that the lack of a major weather event could be a major problem for corn prices.

"If Mother Nature rewards us with a good-yielding year, we’re going to be in the sewer next fall," Utterback says.

With corn prices as low as they are currently, many farmers are opting to store their crop, which could lead up to an oversupply if next year’s yields are strong.

"If we don’t have a bear market in 2014, it’s because of weather," Utterback says. "The only way we’re going to have $5-$6 corn, is if we have a 2012-type drought event."

3. Global demand

How will the global market factor into prices this year? And who are the big players?

"It’s pretty clear that we’ve had a surge in global corn production," Wagner says, citing areas such as the Ukraine and South America, that have boosted their production levels in recent years.

"But the biggest wild card might be China," he says.

There is an extraordinary social dynamic going on in China with urbanization and rising income levels, Wagner explains. And that makes it difficult to predict whether the country will boost its crop production or import more grain.

"They are in a race against a dynamic curve and a production curve, and no one is sure where those factors will intersect," Wagner says.

However, Utterback sees an even bigger and more menacing wild card.

"From what I’ve seen so far, South America will plant more beans and less corn. Nobody’s talking any big supply curtails," Utterback says. "The big nemesis is that the global economy is still struggling."

While the value of the U.S. dollar has dropped, Utterback points out that there are other countries whose currencies are weaker. And a weakened dollar isn’t all bad—it makes exports more marketable, but only if buyers have confidence in the currency.

"There is a point where a value drop becomes bearish," Utterback says. "Once you start losing confidence, man, you have a transition quick."

4. A Stagnant Market

What will it take for corn prices to recover? And what are the chances of it happening next year?

"I think the market is going to be range-bound into next year. I think it’s going to be boring as hell. Like molasses," Utterback says.

He predicts that through May, corn might only have a 50-cent to $2 trading range depending on what the weather does.

Wagner also thinks the spring market will be stagnant.

"To be able to get any rally of substance over the next several months is going to require unanticipated positive shock on the demand side of the balance sheet," Wagner says.

However, once June hits, look out. Utterback forecasts that the market will become violent from June through September, as crop conditions are reported.

But Wagner says producers should be optimistic. He thinks prices will get better—they just might not be sky-high.

"The global demand side—given the demographics of the world, the number of people moving up the food chain, production capacity—I would anticipate that agriculture and producers as a whole have prospect for higher prices. But not necessarily $8 corn and $15 beans," Wagner says.

5. Soybeans

With corn prices what they are, soybeans could be looking more enticing these days. In fact, some traders are saying that beans could drive prices for the next six months.

Utterback says this is likely, but don’t get too optimistic about bean prices.

"How could I convince you to store $13 beans? I would dump the beans and store the corn," Utterback says. "But unless South America runs into problems, there are no $20 beans in front of us."

"If it’s good enough for you to shift acres, then prices are good enough to sell," he adds. "The real danger is not what the flat price does; it’s what the margin does."

"Soybeans are clearly going to be influential, but the bottom line is that producers have to focus on their bottom line," Wagner says. "If you haven’t locked anything in, then look for those opportunities to be able to take advantage."

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Anonymous12/30/2013 09:03 AM

On fri the 27th I received a phone call from the USDA wanting my crop average for the year. First they wanted to know corn production, we had another flash drought here in west central Wis rite when we didn't need it. I told I had a average of 30bu , the lady put that in her computer & the computer kicked it back out saying the number isn't big enough then she wanted a bigger number & I said no. then we did soybeans, I told her my average was 10bu & again her computer kicked it out saying it wasn't big enough put in a bigger number. I wouldn't do it & she said good-bye. So if this doesn't tell you the USDA is lying about the numbers I don't know what would. I caught them red handed!!! If anyone else has had the same experience please let people know about it.

Anonymous12/30/2013 09:03 AM

On fri the 27th I received a phone call from the USDA wanting my crop average for the year. First they wanted to know corn production, we had another flash drought here in west central Wis rite when we didn't need it. I told I had a average of 30bu , the lady put that in her computer & the computer kicked it back out saying the number isn't big enough then she wanted a bigger number & I said no. then we did soybeans, I told her my average was 10bu & again her computer kicked it out saying it wasn't big enough put in a bigger number. I wouldn't do it & she said good-bye. So if this doesn't tell you the USDA is lying about the numbers I don't know what would. I caught them red handed!!! If anyone else has had the same experience please let people know about it.